What happens if you have a credit card but don't use it?

Consequences of Unutilized Credit Cards

Many individuals possess credit cards but may not actively use them, considering them a safety net for emergency situations. However, this lack of usage can have significant implications for their financial well-being.

Reduced Credit Limits and Account Closure

When a credit card remains inactive for an extended period, the issuer may interpret this as a lack of interest in the account. As a result, they may reduce the available credit limit or, in extreme cases, close the account altogether. This can limit access to emergency funds and negatively impact credit scores.

Adverse Impact on Credit Scores

Credit utilization is a crucial factor in determining credit scores. It measures the amount of credit used compared to the amount available. Inactive credit cards contribute to lower overall available credit, thereby increasing the percentage of credit usage. This, in turn, can harm credit scores, especially if other credit accounts are near or at their limits.

How Inactivity Affects Credit Scores

Consider an individual with a total credit limit of $10,000 across two credit cards. If they use $5,000 on one card and keep the other unused, their credit utilization ratio is 50%. However, if they close the unused card, their available credit decreases to $5,000, increasing their credit utilization ratio to 100%. This significant increase can negatively impact their credit score.

Maintaining Active Credit Accounts

To avoid these negative consequences, it’s crucial to maintain active credit accounts. This can be achieved by making regular purchases and paying off the balance in full each month. Even small purchases, such as a cup of coffee, can demonstrate credit usage and help preserve a positive credit history.

Additional Tips

• Set up automatic payments: This ensures timely bill payment and avoids late fees that can harm credit scores.
• Avoid carrying high balances: Keep credit utilization below 30% to maintain a healthy credit profile.
• Monitor credit reports regularly: Check your credit reports from all three major credit bureaus (Equifax, Experian, and TransUnion) to detect any errors or potential issues.

By following these recommendations, individuals can manage their credit cards responsibly, protect their credit scores, and maintain access to financial resources when needed.